Here's a depressing fact: As the gap between poor and middle-class incomes grows, the less likely it is that low-income students, particularly boys, will graduate from high school.
Now, there isn't a perfect relationship between inequality and dropouts. But a state's "lower-tail inequality" — the difference between its 50th and 10th income percentiles — and its intergenerational mobility together explain a good deal of its graduation rate. You can see this in the chart below from Melissa Kearney and Phillip Levin's new paper: the more inequality, the more dropouts.
The question is whether this is just a correlation, or something more. It could be that low-income families are even more segregated in states with more lower-tail inequality, and that's what's causing more dropouts. Or that their schools are even more poorly-funded in these states. Or that they have parents who are in jail. In other words, that inequality itself isn't causing dropouts, but rather that things associated with inequality are.
Well, Kearney and Levine controlled for all these other factors, including race, and the relationship between inequality and graduation rates still stood. So something else must be going on.
And they think that something is psychological. They think that inequality is demoralizing. It's a story about the power of examples: bad ones, and the lack of good ones. When so many low-income kids don't graduate to begin with, it can make others think that they won't either, because school supposedly isn't for "people like them." So dropouts can beget dropouts. And when social mobility is low too, there aren't many positive role models to counteract this self-defeating narrative. Actually, it's even worse: if the kids who do get their diplomas don't do much better than the ones who don't, then what's the point of staying in school?
It's what Kearney and Levine call "economic despair," and it might be one of the biggest costs of inequality: the idea that hope is a middle-class good.